Rising feed cost, low milk prices and market instability have made it necessary for dairy producers to explore an insurance option designed to protect their milk income-over-feed cost, says Pennsylvania Agriculture Secretary Dennis Wolff.

Livestock Gross Margin (LGM) for Dairy is a month-to-month risk-management tool through the USDA’s Risk Management Agency.

“LGM for Dairy is one of several tools available to dairy producers to help minimize business risks,” says Wolff. “Already, several dairy producers in the state have benefited from LGM for Dairy, receiving up to five times their premium back, helping them remain viable even as they face high feed costs and low milk prices. I encourage all producers to explore this very flexible risk-management option and monitor premiums to see if a policy is right for their operation.”

LGM for Dairy covers the difference between the expected and actual gross margins during a producer-selected number of months, for a targeted amount of milk. The gross margin is the total income minus the cost of feed. 

A loss payment results when the expected gross margin exceeds the actual gross margin.

Futures prices from the Chicago Mercantile Exchange are used to determine the expected and actual gross margins, resulting in uniform commodity pricing for the insurance program.

Policies are available to insure some or all milk from one to 10 months. Producers pay varied premiums, from zero to $1.50 per hundredweight, depending on their desired level of coverage.

Recent changes to the insurance program have simplified the enrollment process. Rather than having to provide records for feed and milk, producers will only have to provide quantity of milk records. The changes have also lengthened the time in which producers can sign up for coverage.

Producers may sign up for LGM for Dairy on a month-to-month basis or for 10 months at a time. Enrollment begins on the last business Friday of each month and ends at 9 p.m. the following evening.

For more information about LGM for Dairy, contact your local crop insurance agent.

Source: Pennsylvania Department of Agriculture